The future-empowered high-net-worth investor

Sep 12, 2019 | RBC Wealth Management


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As technology provides greater intelligence, it’s likely the next generation of investors will play by different rules.

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Across the world, the investment landscape is recalibrating: A new generation of high-net-worth investors is leading wealth ownership and applying their more global attitudes and values to investment strategies. As a result, smart philanthropy, alternative investing and impact investing are on the rise, while some more traditional sectors contract. Signs of a worldwide economic slowdown and trade wars that are chilling business confidence compound this. Change is coming. And as people look to future-proof their portfolios in an increasingly complex environment, there is an even greater need for tech-based tools and seasoned council to help investors leverage insights and dodge risks.

High-net-worth investors have enjoyed a long stretch of gains. In the U.S., for instance, the S&P 500 has gone up four-fold since it bottomed out in 2009. The wealthiest 10 percent of families increased their net worth by double-digit percentages, according to Ed Wolff, a professor of economics at New York University who studies the distribution of wealth in the U.S. In the UK, the FTSE100 more than doubled over the same time. The next 10 years will probably not be so easy. Fixed income assets are likely to deliver low to negative returns, while equities face a pull-back.

In parallel with these economic challenges, we have seen the rise of technology-based investment solutions. Nir Vulkan, associate professor of business economics at the Said Business School, University of Oxford, notes that: “Such technical-based solutions in the investment world have brought in another layer of clients into wealth management—people who before thought they didn’t have either enough money, or enough knowledge [to invest].”

However, while more low-cost offerings such as robo-advisors will continue to service this area of the market, high-net-worth investors will benefit from advice more than ever. Here, the wealth management industry is increasingly using technology to offer enhanced solutions and insights delivered by human experts.

“There are definitely things to keep an eye on out there—market levels, geopolitics, economic cycles, interest rates, elections,” says Doug Guzman, group head, RBC Wealth Management & RBC Insurance. “That’s exactly where good advice comes into play, keeping our clients invested and focused on their long-term goals—financial as well as personal.”

So what are the advantages of a dedicated wealth manager? According to Larry Siegel, research director of the Research Foundation at the CFA Institute, the human part of the wealth management process is “helping determine which mix [of stocks and bonds] is right for the individual and adjusting that as circumstances change.”

High-net-worth investors are diversifying their portfolios across other asset classes with low correlations to one another, such as real estate, commodities and alternatives like private equity and hedge funds. That we are so far into a bull run may need further thought regarding investments. Investors know they need equities for the return, but will need more downside protection. Wealth managers can help guide them—potential approaches include smart beta equity, which combines the benefits of passive investing and the advantage of active investing strategies.

How will emerging technology like AI influence the investment process?

Although there has been a lot of noise around the rise of artificial intelligence (AI) in the investment process, the reality will be less about human versus machine and more about how they become better and faster together. As Guzman explains: “Relationship-driven, human advice will continue to be an important part of almost all wealth relationships. As life becomes more complicated, investors will need complex, holistic and thoughtful advice more than ever before. Technology will increasingly create tools that enable advisors to do more, but there will always be a place for real-time, empathetic human advice; especially for high-net-worth clients.”

“Digitally empowered wealth advisors can deliver highly personalized, real-time insights,” adds Christopher Burke, vice president of digital solutions and sales enablement at RBC Wealth Management. For instance, AI can parse news and events from around the world and alert wealth managers as to which clients might be affected and how. “Armed with these insights, wealth managers can proactively reach out to investors to re-strategize,” he says.

AI will offer advantages, but it will have its limitations, says Siegel: “Investing is easy: you buy and hold a diversified portfolio. But getting people to do it, because of the behavioural modifications this requires, is hard. And AI isn’t going to help with that. People influence people, through their knowledge, experience and passion.”

While AI can tell you what the risk exposures in your portfolio are, it takes a human being to diagnose an appropriate response that fits your circumstances.

“Unquestionably, technology is a friend—it’s a tool to complement the traditional model, rather than compete with it,” says Guzman. He explains that wealth managers are leveraging technology regularly to reduce complexity, expedite decision-making and get solutions to both advisors and clients faster. At a time when markets can execute hairpin turns, that speed can be vital.

Ultimately, markets are human creations and human expertise is needed to navigate them. “The role of the human in the wealth management process is like a basketball player—using their experience and skills to respond to the changing conditions on the court,” says Siegel.

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